Gibson's financial woes

impmann

I remember we got some samples from China of a particular guitar that I'd better not mention... the point is that the samples were incredibly good and just needed a few minor tweeks to make them production ready. However, it was felt that (at the time) nobody would pay over £1000 for a Chinese made instrument, no matter how good the product was - and so the project was shelved.

A great shame.

Gassage

If ever there's a biz ripe for Crowdfunding this is it.

andyoz

I haven't read it but it was pretty obvious the company was in terrible shape (bad cashflow) watching their erratic actions over the last 12 months (secure companies just don't act like that IME).

ICBM

impmann said:

However, it was felt that (at the time) nobody would pay over £1000 for a Chinese made instrument, no matter how good the product was - and so the project was shelved.

I find that ridiculous and frustrating given that I'm typing this on a premium-brand computer which cost over £1000 and was made in China.

Adam_MD

ICBM said:

impmann said:

However, it was felt that (at the time) nobody would pay over £1000 for a Chinese made instrument, no matter how good the product was - and so the project was shelved.

I find that ridiculous and frustrating given that I'm typing this on a premium-brand computer which cost over £1000 and was made in China.

It was only a few weeks ago posters on here were complaining about the price of a Korean made prs SE at £829 so they certainly wouldnt buy a £1000+ Chinese guitar.  

impmann

Adam_MD said:

ICBM said:

impmann said:

However, it was felt that (at the time) nobody would pay over £1000 for a Chinese made instrument, no matter how good the product was - and so the project was shelved.

I find that ridiculous and frustrating given that I'm typing this on a premium-brand computer which cost over £1000 and was made in China.

It was only a few weeks ago posters on here were complaining about the price of a Korean made prs SE at £829 so they certainly wouldnt buy a £1000+ Chinese guitar.  

Exactly.

However, having been to the factory where they make those PRS SE guitars in Korea, I'm amazed that they make that much on them - there is so much hand-work that goes into creating guitars at World and its an amazing place.

professorben

Part of the issue is that the country of manufacture is intrinsically linked to perceptions of quality, married to a feeling of 'cool' that prob doesn't affect other products.
like it or not, America is cool, in the circles of Rock 'n Roll etc, California is cool, Nashville is cool etc etc. 
The Uk market is pretty small in comparison, but even we perceive US built guitars as cooler than Korean or Chinese. 

steer

I have always wondered just how these big guitar companies stay in business. 

I know this is a large forum full of guitarists and collectors, who probably own several different guitars, but despite this the actual market place is fairly limited. And good guitars last for years and years.

If you buy a new Gibson les paul at great cost in 2016, when exactly are you going to buy your next one? 

How many people buy brand new guitars anyway? I have bought one brand new guitar in 20 years (an acoustic)  - all the others are used. 

guitars4you

steer said:

I have always wondered just how these big guitar companies stay in business. 

I know this is a large forum full of guitarists and collectors, who probably own several different guitars, but despite this the actual market place is fairly limited. And good guitars last for years and years.

If you buy a new Gibson les paul at great cost in 2016, when exactly are you going to buy your next one? 

How many people buy brand new guitars anyway? I have bought one brand new guitar in 20 years (an acoustic)  - all the others are used. 

Again very valid comments - Guitar stores that rely on box shifting and include Amazon within, would not agree or want to agree - As an oveview actual new guitar sales appears to have peaked and probably contracting - All that is happening is that more and more new sales are going through less and less dealers as they have superior operations and web sites for such sales activities, with smaller independents closing - Right or wrong, good or bad but fact

Yet if no new guitars were made for a few years, a healthy guitar market place would still be accessible via independent stores, such forums as FB and the usual auction sites as we recycle exceptionally clean and often barely played guitars from collections

Manufactures have a far bigger problem about trying to stay in business in 5 or 10 years time than I have

impmann

A while ago, I was talking to a a well known and highly clued up guy in the MI - he said before 2020 we will see a major scalp in the industry. He wouldn't say who, because he said "it was 50/50 between them" but he believed that both the big players were in such a financial quagmire, along with the industry being in decline and the channel being almost at capacity with new, unsold guitars that there would come a time soon where one of them would *have* to stop production.

He also spoke of a supplier with warehouses of unsold stock that languish in the far east and ships that sail around in circles with stock on board that can't dock because the notional 'value' of the stock keeps the investors happy. The truth is that if those boats dock and the goods land, there is no demand for the units on board and the duty would almost wipe out the true sales value. All the time they are at sea, these units are valued at full value for the purpose of accounting, and then depreciation is applied - the point that the depreciation wipes out the value, the units go back to where they were made to be destroyed (that way, no duty is ever paid)... and the circle starts again. The purpose of this is to ensure that the 'value' of the stock/inventory is maintained, to ensure that the company's debts do not exceed the value of the business. I don't know how true that is, but he made a good case for it.

TTony

Strat_a_tat_tat said:

Haych said:

 There seems to be a mentality that a business must grow at all costs. 

Same with every nation's economy. The whole thing is dependant on growth.

Same with pyramid schemes too ... if they stop growing, they implode.

TTony

The focus on growth, growth, growth has intrigued/worried me for years, but it's what our capitalist economies absolutely depend on.  If people stop buying new, "improved", every product cycle, then many businesses would have to reinvent their business models.  That applies to seemingly successful businesses (eg Apple) as well as those that appear less successful (such as Gibson).

I was taught, a long time ago, that turnover = vanity, profit = sanity.

In Gibson's case, I guess it has got to the point where their debt burden is their primary concern when making business decisions.  They clearly can't repay the debt today, so they have to promise that they'll repay it tomorrow.  They promise to do that (honest, trust my forecasts) by growing the business and generating more cashflow, whilst conveniently ignoring the fact that tomorrow's growth merely compounds the problems of today.

If you've got a large business being badly run and failing to make profits, you really don't want to grow it into an even larger business that's still being badly run and still failing make profits ...

57Deluxe

it currently makes sense to carry a lot of Bank debt with rates soooo loooow....

TTony

I didn't realise that the same Group owned those consumer electronics brands alongside Gibson.  

That might explain the move to year-based models, trying to emulate the similar product cycle of some of those consumer brands, expecting that consumers will dump last year's model because this year's new shiny includes a clever new gadget that you simply must have.  Like auto-tuners.

To my mind, that's the wrong business strategy.

Gibson needs to diversify away from product sales and into service sales.  The product market is saturated, so selling more new product is ever more difficult (hence them trying to exert ever greater control over their distributors and using Amazon to dump stock) and will only ever bring diminishing returns.  

Rather than seeing that as a problem, see it as an opportunity (yes, that old cliche).

There's a huge Gibson fanbase out there who are heavily invested in the brand.  Sell them services.  

• An annual guitar "checkup" (think car service).  
• Focus on the add-ons; Gibson's pickup range is ridiculously narrow - they should have a huge upgrade range, sold to their existing customers and fitted during the checkup.  
• Run Gibson club events, focused on individual music genres, some are passive/listen, others are active/play events, etc - ie the revenue stream derives from the experience rather than the product.  

Experiences are a lot easier/quicker/cheaper to develop, tailor and deliver and can bring much higher profit margins, particularly when associated with such a strong brand.

Obviously retain the product too, but shift it up-market rather than trying to compete in the mass market.  Make it properly aspirational (which boosts s/h values too and makes the customer base more loyal, enhancing your services/experiences business).  Make it timeless so it doesn't have to be discounted because it's "last year's model".  


No charge ...

earwighoney

richardhomer said:

In terms of 'the basics' Norlin era Gibsons (whilst less historically 'correct' in design terms) were generally better than most modern examples. And it was the shortcomings of the Norlin guitars which established the vintage market in the first place....

Martin guitars also had a fallow period in that time, their later 70's & 80's era guitars aren't really the ones which get many excited.  

Evilmags

All industries go ex growth eventually, and new ones pop up. Growth in the wider economy is imporant.  In an industry where the last invention to go mainstream was the Floyd Rose growth is hard to find, especially if your big. Gibson seem to have a very poor strategy and management. Fender have sold brands to get debts down and managed to avoid horribly costly mis takes like the 2015 debacle. They have a respectable modern brand (Charvel) metal brand (Jackson) and downmarket brand. They got too big and have acted to steady the ship with a product range that makes sense. Gibson let Stienberg amd Kramer wither on the vine. 

exocet

shrinkwrap said:

Fender don't seem to have too many problems supervising the Chinese /Indo Gretsches - very like Gibsons.
Noticed in that article Gibson bought Onkyo, Teac and Philips consumer audio in last few years - Teac OK, but the other two? What was the MD on?

I saw that and immediately thought "somethings wrong" - Philips are massive (still) - perhaps not in consumer electronics but certainly in Healthcare and Lighting. Turns out Gibson Brands bought a small division called WOOX Innovations http://www.philips.com/a-w/about/news/archive/standard/news/press/2014/20140428-Philips-to-sell-WOOX-Innovations-to-Gibson-Brands.html

JezWynd

shrinkwrap said:

Fender don't seem to have too many problems supervising the Chinese /Indo Gretsches - very like Gibsons.
Noticed in that article Gibson bought Onkyo, Teac and Philips consumer audio in last few years - Teac OK, but the other two? What was the MD on?

The home entertainment market is a lot healthier than guitar manufacturing. If your aim is to make money then it looks like a sound bet.

martinw

It shouldn't surprise anyone that the Chinese can manufacture and export high quality goods, after all, they've been doing it for hundreds of years, and at one time they were very fashionable. Porcelain, carvings, furniture...anything that will turn a profit.

andyoz

I can't think of any other manufacturing industry business model that is based on basically selling a 60yo design which is essentially what Gibson and Fender do.

Innovation drives new sales/customers and fiddling with the electronics on a LP isn't going to do it.  I can't think of any similar example in the manufacturing industry, at least one with a never ending growth model - anyone?  Also, I don't think kids would really gravitate towards an LP when they are hard to play compared to alot of others (alot of us put up with them because our heroes played them)

The whole thing seems to be supported by twats like us that have 10 guitars when we would have only had one or two 30 years ago.  Now we just seem to sell them to each other rather than buying new.